RJ & AM SMALLMON V TRANSPORT SALES LIMITED AND ANOR HC CHCH CIV-2009-409-000363 30 July 2010

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2009-409-000363

BETWEEN RJ & AM SMALLMON Plaintiff

AND TRANSPORT SALES LIMITED First Defendant

AND GRANT ALAN MILLER

Second Defendant

Hearing: 22 & 23 March 2010 Further submissions filed 31 May - 22 June 2010

Appearances: J Moss for Plaintiff

P M James for Defendants

Judgment: 30 July 2010

RESERVED JUDGMENT OF HON. JUSTICE FRENCH

Introduction

[1] Mr and Mrs Smallmon carry on a road transport and earthmoving business in

Queensland, Australia. They purchased four trucks to use in their business from a

New Zealand company, Transport Sales Limited. Transport Sales Limited is owned

by Mr Grant Miller. Mr Miller is also a director of Transport Sales.

[2] The trucks were purchased in New Zealand and shipped to Queensland.

[3] Since the trucks arrived, the Smallmons have experienced a series of

problems, the main problem being that the Queensland authorities have refused to

register the trucks and will only allow the Smallmons to use them on a limited basis.

The Smallmons say this has caused them loss and they seek to recover damages from

Transport Sales and Mr Miller.

[4] The contract did not expressly address the issue of registration or

registrability. Accordingly, the key issue is whether and in what circumstances a

seller of goods can be liable for breach of an implied term as to fitness for purpose

when the alleged lack of fitness arises not from the physical properties of the goods

(the trucks are roadworthy) but as the result of non compliance with a regulatory

requirement in the buyer’s country.

Factual background

[5] The evidence adduced at the hearing regarding the regulatory requirements

for trucks in Queensland was somewhat confused and confusing.

[6] However, the salient features appear to be as follows.

[7] Before a vehicle can be driven on the road in Queensland it must be

registered, and in order to be registered it must meet a number of requirements.

These include a requirement that it must have what are called its “roadworthies”.

Another requirement relating to vehicles manufactured after a certain date is that

they must be fitted with a compliance plate.

[8] “Roadworthies” is the colloquial name for a test undertaken to check whether

or not a vehicle complies with the Australian Design Rules (ADRs). The ADRs are

national standards. Roadworthies are essentially the equivalent of the New Zealand

warrant of fitness.

[9] As for the compliance plate, this is a metal tag attached to the vehicle at the

time of manufacture. Essentially, it is a certificate that the vehicle was manufactured

to Australian Design Rules. If an owner wants to make modifications to the vehicle,

such as adding a tipper, they are required to obtain what is called a modification

plate.

[10] The Smallmons have been in the road transport business in Queensland for

20 years.

[11] In April 2006, Mr Smallmon saw a prominent advertisement in the Australian

edition of a trade magazine, advertising trucks for sale. The advertisement had been

placed by Transport Sales Limited, then known as Transport Sales Canterbury

Limited. It showed a photograph of a truck and gave Mr Miller’s contact details,

stating:

Late model 8x4 cab & chassis available. Some on Spring some on Airbag. Most have Alloys and Med km. Prices available ex New Zealand or Landed at Brisbane, Melbourne or Sydney. These trucks are good buying!!!!!!!

Dealer inquiry welcome.

Phone Grant and discuss your requirements.

[12] At the time, the Smallmons were looking to upgrade their existing fleet. Mr

Smallmon was also aware of another operator in Allora who had imported two trucks

from New Zealand and who had told him they were a good deal. This other

operator’s imported trucks looked “pretty good” to Mr Smallmon, so when he saw

the advertisement he thought it would be worth making further enquiries.

[13] He duly contacted Mr Miller in New Zealand.

[14] Then followed two phone conversations, during the course of which Mr

Miller confirmed it was his company which had sold the trucks to the Allora

operator, and that he had some Volvo FM12 trucks for sale. The photograph in the

advertisement was one of the Allora trucks.

[15] The Smallmons then arranged to meet with Mr Miller in New Zealand in

August 2006.

[16] Shortly before travelling to New Zealand, the Smallmons received a phone

call out of the blue from a Mr Kevin Walsh. Mr Walsh was an ADR compliance

engineer. He stated he had heard the Smallmons were looking at some trucks for

sale in New Zealand and told them that for compliance purposes it was important to

look for three things when inspecting the trucks – the exhaust, the seatbelts and a

stamp on the fuel tank. The conversation ended on the basis that if the Smallmons

did decide to buy the trucks, they could just give him a call when they returned home

and he would be happy to do the ADRs for them.

[17] In evidence, Mr Miller confirmed it was he who had put Mr Walsh on to the

Smallmons.

[18] Mr Walsh did not advise the Smallmons to check to see if compliance plates

were fitted. For reasons which will become apparent, the most likely explanation for

him saying nothing about compliance plates is that he would have known the plates

would be missing but would not have considered it a matter of concern.

[19] The Smallmons duly met with Mr Miller at a truck yard in Auckland. The

meeting lasted approximately an hour. There were some 20 to 30 trucks on the lot.

[20] Mrs Smallmon testified that they inspected the trucks to see whether they

would comply with the ADRs and in particular whether the trucks complied with the

three things mentioned by Mr Walsh. During the course of their inspection, the

Smallmons noted black plates screwed on the inside door of the trucks, which they

assumed were the compliance plates because they were in the same place where in

their experience compliance plates are normally located.

[21] Part of the Smallmons’ business involves the cartage of water. As they had

anticipated, the inspection also confirmed they would have to make some

modifications to the vehicles so as to render them fit for that purpose. The

Smallmons thus always knew they were going to have to obtain modification plates.

[22] There was some conflict in the evidence as to exactly what was said during

the meeting, in particular whether Mr Miller told the Smallmons the trucks would be

ready for use in a few days after arriving in Brisbane, that “everything would be

taken care of” and whether he said there would be no import duty payable.

[23] The following was, however, common ground:

• Mr Miller was aware the Smallmons were purchasing the trucks to use in

their business, which he knew was based in Queensland and which he

knew involved water cartage and landscaping. The Smallmons did not

tell him their work sometimes took them into New South Wales.

• The Smallmons told him the reason they wanted to replace their existing

fleet was because of the age of the vehicles and the large distances they

had travelled.

• They told him they would have to sell their existing trucks to be able to

pay for the new ones.

• Mr Miller told them the trucks had been assembled in Australia and

exported fully made up to New Zealand and were returned Australian

goods.

• Mr Miller stated he had exported trucks to Australia before and had never

encountered any problems.

• Mr Miller never gave them any advice on Australian registration

requirements and the Smallmons never asked him.

• There was never any discussion of any kind as to what was required in

Queensland before the vehicles could be registered.

• Mr Miller told them he could put them in touch with Australian

contractors who had brought in the other trucks he had sold to

Australians. One was a customs broker, a Mr Tucker, and the other was

Mr Walsh who did the ADRs. It is unclear whether Mr Miller actually

named the two contractors or just said he would arrange for them to

contact the Smallmons.

• At no stage did Mr Miller draw to the Smallmons’ attention that the

trucks did not have compliance plates.

• Mr Miller never advised the Smallmons they should check out the rules

relating to importation and registration.

[24] It was clear from the evidence that the parties were somewhat at cross-

purposes over the compliance plates. Mr Miller was aware of the need for

compliance plates in a general sense, but not that it was a pre-requisite for

registration in Australia. He also knew the trucks he was selling did not have

compliance plates and believed the Smallmons must have appreciated that because

that was the reason they needed to engage the services of Mr Walsh. The Smallmons

thought the trucks did have compliance plates attached and that Mr Walsh’s function

was to do the modification plates and the roadworthies.

[25] At the conclusion of the meeting, the Smallmons verbally agreed to purchase

four trucks for the sum of $72,000 per truck, with a deposit of 10 per cent payable

immediately and the balance to be paid before the trucks left New Zealand. Mr

Miller was to arrange and pay for the cleaning of the trucks and the shipping.

[26] There was never any written contract.

[27] In some parts of their evidence, the Smallmons contended that as well as the

cleaning and shipping, “Grant and his guys” were to arrange for the roadworthies

and everything else up to the point of the Smallmons taking the trucks along to get

them registered.

[28] By “his [Grant’s] guys”, the Smallmons explained they meant Mr Walsh who

had already telephoned them and Mr Tucker the customs broker.

[29] As the hearing unfolded, however, the Smallmons accepted that Mr Walsh

and Mr Miller were in fact their agents, not Mr Miller’s agents. They were only “his

guys” in the sense he was the one who had recommended them and put them in

touch with the Smallmons.

[30] In cross-examination, the Smallmons also accepted it was agreed it was their

responsibility to attend to roadworthies and registration once the trucks arrived in

Brisbane.

[31] Mr Miller testified that he was not aware of what formalities would be

required to get the trucks registered. This was accepted by counsel for the

Smallmons who nevertheless argued it was something Mr Miller should have known

about or he should have told the Smallmons he did not know. For his part, Mr Miller

said he had not made any inquiries about the Australian requirements because under

the contract he did not have anything to do with that side of things.

[32] The day after the meeting with Mr Miller at the truck yard, the Smallmons

paid the 10 per cent deposit.

[33] They received an invoice for the balance of $259,220 on 31 August 2006, and

paid it on 18 September 2006.

[34] In September 2006 the Smallmons were contacted by Mr Tucker, the man Mr

Miller had recommended they should engage to take care of the importing

requirements. Mr Tucker explained the various matters that his company would

undertake, including arranging the quarantine inspection. He also detailed the cost

of his services. The Smallmons paid these to his company direct.

[35] During September, the Smallmons also spoke again to Mr Walsh, the ADR

compliance engineer, about the modifications they wanted to make to the trucks once

they arrived.

[36] The trucks left New Zealand on 29 September 2006.

[37] They arrived in Brisbane on 2 October 2006.

[38] However, that was when the first of the problems at issue started. Instead of

being released to the Smallmons, the trucks were quarantined because the Australian

authorities considered they were too dirty.

[39] The resulting delay was of considerable concern to the Smallmons due to the

fact they had already disposed of some of their existing trucks.

[40] The cost of additional cleaning to the standard required by the Australian

Quarantine Service was AU$3993, which Mr Tucker’s company paid to get the

trucks released. (He later sought reimbursement from the Smallmons, who refused

to pay on the grounds they considered it was Mr Miller’s liability, not theirs.

However, Mr Tucker successfully sued the Smallmons in a small claims court and

they were compelled to pay.)

[41] Two of the trucks were eventually released on 16 October 2006 and the

remaining two on 19 October 2006.

[42] After collecting the trucks from the port, the Smallmons then had the trucks

modified and obtained the roadworthies. This work was undertaken by Mr Walsh.

[43] On 20 October 2006, Mrs Smallmon went to register the first of the trucks at

Queensland Transport. However, much to her dismay, she was informed that she

was not able to register the truck because it did not have compliance plates attached

and because she did not have an authority to import from the National Transport

Department.

[44] This was all news to the Smallmons. Their understanding was that they

would not need anything other than the modification plates and the roadworthies to

get the vehicle registered, an understanding they claim to have received from “Grant

and his guys.”

[45] In the ensuing weeks, Mrs Smallmon enlisted the support of Mr Tucker and

others (including a lawyer) to try and persuade the authorities to register the vehicles,

but to no avail. In the end, following the intervention of the Smallmons’ local

Member of Parliament, Queensland Transport and the National Transport

Department eventually agreed to issue the Smallmons with an exemption permit for

each of the four trucks.

[46] The permits were issued on 23 November 2006. They allow the Smallmons

to use the trucks but on a restricted basis. The permits are for a limited period of

time, with an expiry date of 21 September 2011, although indications are they will be

renewed for a further five-year period. The permits are not transferrable, which

means the trucks cannot be sold. The permits also restrict use of the trucks to

Queensland. Previously, five per cent of the Smallmons’ business had involved

cartage outside of Queensland into New South Wales.

[47] In May 2007, the Smallmons struck another problem. They were selected for

auditing by the Australian Customs Service on account of the controversy from the

previous year. The result of the audit was a ruling that the Smallmons were required

to pay import duty on the trucks in the sum of $AU12,979.83. This was a shock to

the Smallmons because they had always understood there was no duty payable.

[48] Much of the evidence at the hearing was devoted to the reasons why the

Smallmons had been unable to register the trucks and whether the Australian

authorities were right to take the attitude they did regarding registration and the

import duty. It was apparent the Smallmons themselves are still confused. Adding

to the confusion was the fact that another operator who purchased similar trucks

from Mr Miller only a month earlier had ‘no difficulty whatsoever’ in obtaining

registration in Queensland, despite the absence of fitted compliance plates and an

authority to import. Similarly, Mr Tucker, who has been involved in the importing

of similar trucks on many occasions, said he had never encountered the difficulties

experienced by the Smallmons. This prompted the defendants to suggest Mrs

Smallmon must have antagonised the officials by being overly aggressive.

[49] The evidence established that Volvo trucks of the type purchased by the

Smallmons were originally assembled in Australia. According to Mr Tucker’s

uncontradicted testimony, all the trucks were manufactured to ADR requirements

and compliance plates made for the trucks but never attached. This was because the

trucks were intended for export to the New Zealand market and required some minor

modifications for that market. Mr Tucker testified that he had seen a box containing

all the ADR compliance plates for the Volvo trucks that had been exported to New

Zealand and the Pacific. He was confident the compliance plates for the Smallmons’

trucks would be amongst them. The problem was that Volvo for reasons of its own

would not release any of the plates.

[50] In the past, other Australian purchasers of imported Volvo trucks have

obtained registration by providing the authorities with what is called a ratings letter

from Volvo confirming the “build spec” and a letter of compliance from a

compliance engineer. The letter of compliance from the engineer certifies that the

vehicle complies with all relevant ADRs applicable as at the date of manufacture.

[51] Through Mr Walsh, the Smallmons had obtained a ratings letter from Volvo

and a letter of compliance. However, in their case that was held not to be sufficient.

There was evidence that, since their case, another importer of Volvo trucks has been

told that any vehicles he wants to bring into Australia in the future must have a fitted

Australian compliance plate and that he must apply for vehicle import approval prior

to shipping.

[52] Mr Tucker, who has been importing trucks and heavy machinery into

Australia since 1983, never told the Smallmons they needed an authority to import.

But that was because it was his belief that import permits were only required for

trucks manufactured outside Australia.

[53] Similarly, Mr Walsh never alerted the Smallmons to the importance of

having fitted compliance plates.

[54] According to the evidence, it seems that for whatever reason the Australian

authorities must have either changed their previous enforcement policy or are now

wrongly applying the relevant regulations. The evidence provided was limited and it

was impossible for me to reach a concluded view one way or the other. The

Smallmons did not call any expert evidence. Nor did I have the benefit of testimony

from any of the Australian authorities. All that can be safely said on the evidence is

that the Smallmons’ difficulties in obtaining registration were unprecedented, or as

Mr Moss called it a “freak occurrence”.

[55] There is no doubt the four trucks do in fact comply with Australian Design

Rules and comply with all relevant ADRs applicable as at the date of manufacture.

The deficiency lies in the absence of the compliance plates and the absence of an

authority to import. Of those two deficiencies, it is the absence of a fitted

compliance plate that seems to be the major stumbling block. It is a defect that can

never be remedied unless perhaps Volvo released the plates. The trucks cannot be

re-made.

[56] While, as I have said, Mr Miller knew the trucks did not have a compliance

plate, I accept he would not have appreciated the significance of that, given the fact

he had sold other vehicles also without compliance plates and those purchasers had

never experienced any difficulty.

[57] As regards the import duty, the Smallmons are not the only importers of

Volvo Australian-assembled trucks to have been levied retrospectively with import

duty. Mr Tucker was adamant the Customs ruling was wrong because it was based

on a mis-classification of the trucks and an unsubstantiated assertion by Volvo that it

had claimed duty drawback when the assembled trucks were originally exported to

New Zealand. The significance of duty drawback having been claimed was that if

true it would mean the trucks could not qualify as returned Australian goods. Mr

Tucker said the Customs ruling could and should have been challenged through an

available appeals process.

The claim by the Smallmons

[58] The Smallmons say that had they known the trucks were not capable of being

fully registered, they would never have purchased them. They have lost five per cent

of their business due to being unable to go into New South Wales, and say the

inability to sell the trucks means they cannot sell their business. They consider the

trucks worthless and are seeking recovery of the full purchase price. They also claim

to have suffered losses as a result of being unable to use the trucks between 5

October (the date the trucks arrived) and 24 November 2006 (the date the exemption

permits commenced). In addition, they claim the costs of the additional cleaning and

the cost of the import duty, as well as losses associated with having to forego sales of

some of their old vehicles.

[59] The total claim amounts to AU$341,692.83.

[60] The statement of claim alleges the following causes of action:

As against Transport Sales Limited:

i) Breach of contract.

ii) Breach of the implied term of fitness for purpose under the

Sale of Goods Act 1908.

iii) Breach of the United Nations Convention on Contracts for the

International Sale of Goods.

iv) Misrepresentation under the Contractual Remedies Act 1979.

v) Misleading and deceptive conduct under s 9 of the Fair

Trading Act 1986.

vi) Tortious negligence.

As against Mr Miller in his personal capacity:

vii) Misleading and deceptive conduct under the Fair Trading Act.

viii) Tortious negligence.

[61] There is a considerable degree of overlap between the various causes of

action, and indeed to the extent that both the Sale of Goods Act 1908 and the UN

Convention are pleaded, the statement of claim is misconceived.

[62] Both Australia and New Zealand have adopted the Convention as part of their

law. In New Zealand that was achieved by the enactment of the Sale of Goods Act

(United Nations Convention) Act 1994. It came into force on 1 October 1995.

Section 5 provides that the UN Convention is to be a code. The effect of s 5 is that

when the Convention applies, a party is precluded from suing under the Sale of

Goods Act 1908: see KA (Newmarket) Limited & Ors v Hart & Anor HC Auckland

CP467/SD01, 10 May 2002, Heath J.

[63] There is no question that the Convention applied to the transaction between

Transport Sales and the Smallmons. It was a contract for the sale of commercial

goods between parties whose respective places of business were in different

contracting states and who did not purport to contract out of the Convention: see

Articles 1 to 6 of the Convention which set out the necessary pre-requisites.

[64] It follows that the cause of action which relies on an implied term under the

Sale of Goods Act 1908 must be struck out.

[65] During the course of submissions, Mr Moss also conceded that having regard

to Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 (CA), it was questionable

whether Mr Miller owed the Smallmons a duty of care in his personal capacity as a

director of Transport Sales. Mr Moss further accepted that in any event because

what had happened was a “freak occurrence”, Mr Miller could not be said to have

been negligent on the facts even if he did owe a duty of care. I pause here to add that

Mr Moss also accepted that Mr Miller could not be said to have been negligent in

recommending Messrs Walsh and Tucker. Their competence was not put in issue. If

Mr Miller was not negligent on the facts, then Transport Sales cannot be liable in

negligence either.

Discussion

What were the terms of the oral contract?

[66] A logical starting point is to ascertain the terms of the contract between

Transport Sales and the Smallmons.

[67] The statement of claim pleads that the contract contained the following

express terms:

a) Transport Sales agreed to sell to the Smallmons four Volvo FM12

trucks of a specified type, age and kilometre reading.

b) Transport Sales would arrange for the export of the trucks from New

Zealand and their importation into Australia via its agents.

c) Prior to the departure of the trucks, Transport Sales would ensure the

trucks were cleaned to a standard required by Australian Quarantine

and Inspection Services to enable their release immediately after

arrival in Australia.

d) The Smallmons would pay a purchase price of $72,000 per truck, as

well as the reasonable costs of Transport Sales and its agents incurred

in the export from New Zealand into Queensland.

[68] In my view, the evidence does not support the above as a wholly accurate

description of the express terms of the agreement reached between the parties.

[69] As I have already mentioned, in cross-examination the Smallmons

themselves admitted that Messrs Walsh and Tucker were their agents, not the agents

of Transport Sales. The Smallmons also accepted that Transport Sales’ obligations

under the contract were limited to cleaning and shipping. Transport Sales never

agreed to arrange importation and registration. That was the Smallmons’ own

responsibility.

[70] As regards cleaning, Mr Miller contended that the cleaning was to enable the

vehicles to be placed on the boat. It was not a cleaning to enable them to pass

Australian quarantine standards. He testified that he was “not aware of Australian

quarantine standards and was merely contracting to clean the vehicles sufficient for

them to be placed on the vessel for shipment to Brisbane which was part of my

contract.”

[71] I do not accept that assertion. The cleanliness declaration which he himself

signed on behalf of Transport Sales is expressly addressed to the Australian

Quarantine Inspection Service. It refers to the four trucks and states:

CLEANLINESS DECLARATION

TO : AUSTRALIAN QUARANTINE INSPECTION SERVICE

RE : SHIPMENT OF 4 X 2001 VOLVO MODEL FM12, 8X4 CAB/CHASSIS ROAD TRUCKS, VIN #YV5J4DAG41D122390, #YV5J4DAG11D122414, #YV5J4DAG21D122423 & #YV5J4DAG51D122383

SHIPPED ON MV TARONGA V. AF630 POL AUCKLAND, NZ POD BRISBANE, AUSTRALIA

WE HEREBY CERTIFY THAT PRIOR TO EXPORTATION, THE ABOVE TRUCKS WERE STEAM CLEANED AND PRESSURE WASHED. WHERE POSSIBLE, ALL PANELS AND GUARDS WERE REMOVED FOR CLEANING.

TO THE BEST OF OUR KNOWLEDGE, THE TRUCKS ARE FREE OF ANY INFESTATION AND QUARANTINE CONTAMINATION, INCLUDING LIVE INSECTS, SEEDS, SOIL AND ANY OTHER PLANT OR ANIMAL DEBRIS.

[72] Mr Miller failed to discover this document.

[73] There was evidence that the Australian quarantine officials almost invariably

required re-cleaning and that some were considered over-zealous. However, in my

view, if Mr Miller wanted to pass the risk of this happening onto the Smallmons he

needed to have said so expressly. As it was, Transport Sales assumed an obligation

to clean the trucks to Australian quarantine standard. On the evidence, I find that the

trucks were not cleaned to the requisite standard and that Transport Sales is

accordingly liable to pay the additional cleaning costs.

[74] In coming to this conclusion, I have not overlooked the evidence that as at 15

September 2006, Mrs Smallmon had become aware from Mr Tucker that it was most

likely the Quarantine officials would require re-cleaning. However, as a matter of

law that cannot alter the terms of the contract with Transport Sales which had been

concluded in August.

[75] In addition to the express terms, the statement of claim also pleads several

implied terms, said to be “implied into the contract as a matter of law by reason of

the nature of the contract”:

a) Transport Sales warranted that the trucks were fit for the purpose of,

and intended use by, the Smallmons in their business;

b) Transport Sales and its duly authorised agents would exercise

reasonable care and skill in carrying out the terms of the contract;

c) Transport Sales had requisite knowledge and ability in the area of the

export of trucks from New Zealand and the import of trucks into

Australia to enable it to import the trucks into Australia in a manner

which would allow for the Smallmons’ full business use and in a

timely manner; and

d) Transport Sales had the requisite knowledge and ability to determine

the correct documentation or authorities needed for the import of

trucks from New Zealand into Australia for the Smallmons’ full

business use and in a timely manner.

[76] Of these alleged implied terms, only the first is of any relevance. Such a term

is derived from Article 35 of the UN Convention. The other alleged implied terms

essentially depend on the wrong assertion that it was Transport Sales’ obligation to

undertake the importation, which it clearly was not.

Was there a breach of Article 35 of the United Nations Convention?

[77] Article 35 provides:

(1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.

(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:

(a) are fit for the purposes for which goods of the same description would ordinarily be used;

(b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement;

(c) possess the qualities of goods which the seller has held out to the buyer as a sample or model;

(d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.

(3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity.

[78] There was no express warranty in the contract between Transport Sales and

the Smallmons relating to registration.

[79] Nor did the parties ever purport to contract out of Article 35, and

accordingly the standards set out at Article 35(2) were implied terms which formed

part of the contract.

[80] Article 35(2)(a) requires that the goods be fit for the purposes for which they

are ordinarily used.

[81] Trucks are ordinarily used for carting goods on the road. These trucks were

mechanically capable of being driven on the road. However, the Smallmons contend

that because the trucks were not registrable at the point of sale, and never could be

fully registered, they could not be driven and were therefore not fit for the ordinary

purpose.

[82] The issue of whether conformity with Article 35(2)(a) can be determined by

reference to regulatory requirements prevailing in the buyer’s jurisdiction has been

considered in a number of overseas decisions and articles1: for example, the 'New

Zealand mussels case' (Bundesgerichtshof (German Supreme Court), 8 March 1995,

VIII ZR 159/94), the 'Italian Cheese Case’ (Court of Appeal, Grenoble, 13

September 1995, 93/4126) and Medical Marketing v. Internazionale Medico

Scientifica (Federal District Court, Louisiana, 17 May 1999, 99-0380). See also

commentary on Article 35(2)(a) in P Schlechtriem & I Schwenzer Commentary on

the UN Convention on the International Sale of Goods (2nd ed, OUP, 2005) at 418

and P Schlechtriem & P Butler UN Law on International Sales (Springer, 2009) at

[139].

[83] The following principles can be distilled from these authorities:

i) As a general rule, the seller is not responsible for compliance

with the regulatory provisions or standards of the importing

country even if he or she knows the destination of the goods

unless:

a. The same regulations exist in the seller’s country.

b. The buyer drew the seller’s attention to the regulatory

provisions and relied on the seller’s expertise.

c. The seller knew or should have known of the

requirements because of special circumstances.

Special circumstances may include:

i. The fact the seller has maintained a branch in the

importing country.

ii. The existence of a long-standing connection

between the parties.

1 The two main sources of such decisions are an online digest maintained by the UN Commission on International Trade Law (www.uncitral.org/uncitral/en/case_law/digests/cisg2008.html), and an online database maintained by Pace University in New York (www.cisg.law.pace.edu).

iii. The fact the seller has often exported into the

buyer’s country.

iv. The fact the seller has promoted its products in the

buyer’s country.

[84] While one of the leading cases involved a New Zealand product, the decision

was actually the decision of a German court. It appears that the present case is the

first New Zealand decision to have ever considered the application of Article 35 to a

contract made in New Zealand.

[85] Counsel for both parties nevertheless sought to rely on domestic sale of

goods law.

[86] However, in my view, recourse to domestic law is prohibited by Article 7.

[87] Article 7 provides:

(1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.

(2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

[88] The requirement imposed by Article 7(1) namely to have regard “to the

international character of the convention and to the need to promote uniformity in

application” is generally accepted as establishing what has been called a principle of

autonomous interpretation. That means the Convention must be applied and

interpreted exclusively on its own terms, having regard to the principles of the

Convention and Convention-related decisions in overseas jurisdictions. Recourse to

domestic case law is to be avoided:

In reading and understanding the provisions, concepts and words of the Convention, recourse to the understanding of these words and the like in domestic systems, in particular, the domestic legal system of the reader, must be avoided. This seems to be self-evident but experience shows that

practitioners and scholars tend to understand words and concepts of the Convention according to their familiar domestic law.

(P Schlechtriem, Requirements of Application and Sphere of Applicability of the CISG (2005) 36 VUWLR 781 at 789-790)

[89] Counsel rely on Article 7(2) to justify citation of domestic law. However,

that only authorises reference to domestic law in order to fill gaps in interpretation.

[90] In my view, this is not a situation of there being a need to fill a gap. The

wording of Article 35 is clear, and there is sufficient overseas case law to allow

autonomous interpretation of Article 35 without reference to domestic case law.

[91] In applying Article 35, regard must also be had to Article 8 which states:

(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.

(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.

(3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.

[92] Applying the relevant principles to the facts of this case, it was common

ground that the registration requirements in Queensland are different to those

prevailing in New Zealand. It was also common ground that at no stage did the

Smallmons ever raise the issue of registration requirements with Mr Miller. Further,

there was no evidence that Mr Miller knew what the registration requirements were

in Queensland.

[93] It follows that if the Smallmons are to succeed in establishing a breach of

Article 35(2)(a), it must be on the grounds that Mr Miller and Transport Sales ought

to have known because of special circumstances.

[94] What is alleged to amount to special circumstances are the facts that

Transport Sales advertised in Australia and that Transport Sales had exported trucks

previously into Australia. The evidence established that prior to the Smallmon

transaction, Transport Sales had exported seven Volvo trucks into Australia.

[95] As the authorities make clear, these are circumstances capable of amounting

to special circumstances.

[96] However, in my view, they are outweighed by two other considerations. The

first is the terms of the advertisement which stated “landed” at Brisbane. The second

is that Mr Miller expressly recommended Australian contractors who would be able

to assist the Smallmons with importation and ADR compliance. He was thereby

delineating the parties’ respective responsibilities, as well as delineating his own

field of expertise and knowledge, and in my view in those circumstances it would be

wrong to say that Mr Miller or Transport Sales ought to have known.

[97] The same consideration also applies to Article 35(2)(b):

2. Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:

…

(b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement

[98] The Smallmons made known they wanted to use the trucks in Australia and

therefore “use in Australia” could be said to be a particular purpose.

[99] However, in my view, the circumstances show it was unreasonable for the

Smallmons to rely on Transport Sales’ skill and judgment. The Smallmons were

experienced transport operators. They were in a much better position to know the

registration requirements of their own country than Mr Miller. The fact the trucks did

not have compliance plates was not hidden from them, but was there to be seen. As

experienced transport operators, they could be expected to be able to identify a

compliance plate. Further, Mr Miller recommended they engage specialist

contractors, which they did. Significantly, Mrs Smallmon agreed with the

proposition that the purpose of inspecting the vehicles was to see if they complied

with ADRs and that at that stage they were acting on advice from Mr Walsh.

[100] In those circumstances, any reliance placed on Mr Miller’s expertise or

knowledge or that of his company about the regulatory requirements in Australia

would not in my view be reasonable.

[101] For completeness I should record that I would have come to this conclusion

regardless of which party bears the burden of proof. There is a conflict in the

authorities on the Convention as to whether it is the seller or the buyer.

Misrepresentations

[102] The statement of claim pleads the following pre-contractual

misrepresentations as the basis of the claims under the Fair Trading Act and s 6 of

the Contractual Remedies Act.

a) The trucks were returned Australian goods and could be imported into

Australia for the Smallmons’ use and in a timely manner.

b) The trucks would be cleaned prior to their departure from New

Zealand to the required standard of Australian Quarantine Inspection

Service, such that there would be no delay on arrival in Australia.

c) There would be no problems with importation, compliance and

registration of the trucks for the full business use.

[103] Correctly analysed, the alleged statement regarding the cleaning of the trucks

is in my view a promissory statement of future intent rather than an actionable

misrepresentation. It was an express term of the contract and, as I have found, was a

term that was breached.

[104] There was a conflict in the evidence as to whether Mr Miller ever stated that

there would be no problems, and that the trucks would be available for use within a

few days of landing.

[105] While such statements could be considered statements as to the future, they

arguably contain within them an implicit assertion of existing fact – namely that the

trucks were in a registrable state.

[106] I am satisfied however on the evidence that Mr Miller never made any

statements in the terms pleaded. At the time he had no knowledge of the detail of the

modifications the Smallmons were proposing to make, nor how long the

modifications would take. In those circumstances I consider it unlikely he would

have put a timeframe on it. I am also satisfied he never told the Smallmons there

would be no problems.

[107] What the evidence established he did tell the Smallmons was that he had

exported trucks to Australia before and that the purchasers had not experienced any

problems. Those statements were true. They must have been intended to give the

Smallmons confidence, but the risk of there being problems was still theirs.

[108] It is impossible not to have a great deal of sympathy for the Smallmons.

However, their bad experience has clearly coloured their account of the discussions

with Mr Miller to the point where they asserted that Mr Miller had promised to take

care of everything, when patently he had not; and to the point where they asserted

that Messrs Walsh and Tucker were Mr Miller’s agents, when again patently they

were not.

[109] As regards the issue of import duty, Mr Miller denied ever saying that no

import duty would be payable. He did, however, admit that he may have described

the trucks as returned Australian goods. I consider it most unlikely he would have

had occasion to use that phrase unless it was in the context of a discussion about

whether import duty was payable.

[110] However, the evidence established that in the past such trucks have been

regarded as returned Australian goods and no duty has been levied. The Smallmons

have not challenged the correctness of the ruling, and the only expert evidence

adduced was to the effect that the ruling was wrong and that import duty was not

payable.

[111] In those circumstances, the Smallmons have not discharged the onus of

proving that any statement made by Mr Miller about the trucks being returned

Australian goods and import duty was false

[112] The fact they also engaged their own expert customs broker would also mean

that reliance on any statements made by Mr Miller would not be reasonable,

reasonable reliance being a pre-requisite of both claims.

[113] There being no actionable misrepresentations and no reasonable reliance, it

follows that the claims under the Fair Trading Act and Contractual Remedies Act

must also fail.

Outcome of Hearing

[114] I find that Transport Sales Limited did breach its obligations under the

contract relating to the cleaning of the trucks.

[115] The loss suffered by the Smallmons as a result of that breach was the

payment of the additional cleaning costs and they are therefore entitled to judgment

against Transport Sales in the sum of AU$3993. That does not of course mean I

consider the decision of the small claims court in Australia was wrong. It was

concerned with liability for the additional cleaning costs as between the Smallmons

and Mr Tucker’s company, not as between the Smallmons and Transport Sales.

Interest on the sum of AU$3993 at the Judicature Act rate is awarded from the date

the Smallmons paid the costs to Mr Tucker’s company. Leave is reserved to either

party to come back to the Court for further directions if they are unable to agree on

the amount of the interest.

[116] The Smallmons have also claimed loss of profits due to the trucks being

quarantined for cleaning. However, the inability to register the trucks would have

prevented the trucks from being used anyway even if they had passed the quarantine

inspection. Further, the Smallmons chose to sell their existing trucks despite

knowing re-cleaning and thus delay was “most likely”. In my view, any claim for

losses due to delay caused by the cleaning is not sustainable.

[117] For the reasons already traversed, all the other claims made by the

Smallmons are dismissed.

[118] As regards costs, in the event the parties are unable to reach an agreement on

costs and require me to make an award, I direct the defendants are to file

submissions first, with submissions from the Smallmons’ counsel within five

working days thereafter.

Solicitors: gca Lawyers, Christchurch Saunders & Co, Christchurch